Below are some of the most interesting things I came across this week. Click here to subscribe to our free weekly newsletter and get this post delivered to your inbox each Saturday morning.
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Bloomberg reports that Jensen Huang’s ouster will “reverberate far beyond the company’s operations, and not just because Nvidia is the dominant maker of chips at the heart of the AI boom. Huang is a consummate dealmaker and has used the company’s vast resources to invest in the AI supply chain and a variety of startups.”
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Those startups include the major frontier labs which require massive outside financing until they can grow revenues to support their massive and rapidly growing obligations. As The Economist explains, “Everything in ai-world relies on revenue at the top of that funnel continuing to flow in, ideally at an ever-increasing rate… One cause of ai’s recent wobble was a fear that revenue growth may be slowing.”
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Slowing growth at these, the largest buyers of compute, suggests that the AI data center buildout could have already grown more rapidly than is justified by future demand. In this vein, Jim Paulsen writes, “Stock price movements often portend a pending change in economic fundamentals. AI stocks have collapsed by about 30% just in the last month. Is this significant fall signifying a pending drop in AI earnings?”
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This may have something to do with the fact that it looks as if AI capex growth will put in a major peak this quarter. “The challenge with a capex boom supporting earnings is that keeping the same pace of earnings growth requires continued capex *growth* at the same pace,” explains Bob Elliott.
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History offers a lesson of what it looks like after a capex boom passes its peak growth rate. Cameron Crise points out, “The drawdown overlay between Cisco and Nvidia looks remarkably similar. The analogy suggests that we are now in what’s the equivalent of May 2000, after the peak of the dot-com Nasdaq complex.”
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